Business Finance Essay

738 Words3 Pages
The origins of stock markets can be traced as far back as the 13th century, yet it wasn’t until the 20th century that their importance grew in response to demands for funds to finance investments and ventures in overseas trade. Furthermore, with the rapid technological and global expansion they have become a crucial platform where governments and organisations can raise long term-capital, investors can buy and sell securities whilst facilitating the development and growth of the economy. (Arnold) With the aid of financial theory and practice, and the vast amounts of data available from the media, people have becoming significantly aware of the long term returns that could be made from stocks which are significantly higher than that of bonds and savings. The vast quantities of data available at the investors finger tips has resulted in millions of stocks being traded every day on the worlds stock markets with many trying to “beat the market” and making abnormal returns. Despite the development of modern business finance theory, characterised by an overarching managerial objective namely maximisation of shareholders wealth there is still little that can be said about the performance of a company using the figures for ordinary share capital, dividend per share and EPS drawn from a series of published accounts. The key is the market price of equity, which will be discussed with reference to share price, dividend yield, dividend cover and the P/E ratio. The government deregulation of the financial market in the 80’s and 90’s and the subsequent technological developments have enabled companies to compete in the global market place due to the reduced barriers to trade. (Arnold) One of the most crucial benefits provided by the stock markets is the ability to bridge the gap between organisations requiring long term funds and investors who would only be willing to

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